KOLKATA: The striking down of the telecom regulator’s call drop compensation order by the Supreme Court Wednesday will remove the overhang from telco stock prices and lead to a possible re-rating of key stocks, analysts said.

“The call drop verdict could lead to some re-rating of telecom stocks, (especially) since Bharti Airtel and Idea Cellular share prices have declined by 15% and 36% respectively since June 2015,” said brokerage UBS in a note.

Noting that Airtel and Idea had witnessed share price weakness in the last six months on account of the call drop overhang, analysts at UBS felt “the Telecom Regulatory Authority of India’s directive was practically difficult to implement”.

Bank of America-Merrill Lynch, in turn, expects the apex court verdict to remove the overhang from Airtel and Idea stock prices as in a worst-case scenario, such a move was likely to impact 5% of Ebitda (earnings before interest, taxes, depreciation & amortisation) of Indian telcos”.

The brokerage said that the favourable Supreme Court verdict would be positive for Bharti and Idea as it also removes regulatory overhang and prevents telcos from making incremental investments in setting up call centres to handle call drop issues”.

The apex court had struck down the sector regulator’s directive imposing penalty for call drops on telecom operators, calling the directive, “unconstitutional and arbitrary”.

Last October, Trai had imposed a penalty of Re 1 per call dropped with a maximum penalty of Rs 3 per day on mobile carriers for each call dropped on account of an error on the part of the telco.

Telecom stocks rose post the apex court order but have been mixed since then. Bharti Airtel and Reliance Communications’s stocks were down 1.53 % and 1.26% to Rs 363.20 and Rs 54.90 respectively, while Idea’s scrip crept up 0.27% to Rs 113.20 on the Bombay Stock Exchange.

Mobile operators had cried foul over the Trai directive, arguing that the regulator had no authority to levy such penalty and secondly, by saying that it wasn't possible to segregate the reasons for call drops. The regulator, in turn, had said that the telcos had under-invested in networks in an effort to improve profitability, a charge the telcos have consistently denied.

Separately, RCom initiated contempt proceedings in the apex court against the Department of Telecommunications, blaming it for delaying a spectrum sale that would have enabled dues to be paid to Ericsson and lenders.